Government data paints divergent views of US job market's strength

The US labor market remains historically robust or is unraveling rapidly, according to the progressively dissimilar views offered by surveys that form the basis of the government's monthly employment report. The growing data differentials may be clouding a broader economic outlook and revealing a job market that economists expect to be far more brittle than most believe.

In May, the US added 272,000 jobs, according to the Bureau of Labor Statistics payroll survey, which polls thousands of businesses each month on their hiring practices and is the most-often cited figure for employment changes. Another survey published alongside establishment data — a poll of a smaller number of households — showed a loss of 408,000 jobs. A long view shows a starker contrast, with the establishment survey showing 1.9 million jobs added over the past eight months, while the household poll shows nearly 500,000 jobs lost over the same time.

While the surveys have always shown a slightly different picture of the US labor market, results have varied far more since the pandemic and have differed by millions as the Federal Reserve started its battle against inflation with higher rates in March 2022. The growing gap between the two has thrown the actual health of the jobs market into doubt as the Fed has been reluctant to cut interest rates, largely due to the ongoing strength of the American workforce.

"Essentially, I think we are somewhere in the middle regarding job creation," James Knightley, chief international economist at ING, said in an interview. "Payrolls is too high and household is too low."

Diverging views, 'more noise'

In a June 12 press conference following the Federal Open Market Committee, which sets interest rates, Fed Chairman Jerome Powell said it can be difficult for monetary policymakers to reconcile the differences between the datasets. It helps to look at a series of three, six or 12 months' worth of data to get an accurate view of the state of domestic labor.

Throughout 2023, for example, there were nearly 1.9 million jobs added, according to the household survey, or more than 3 million added, according to the payroll survey. Since the start of 2014, that gap is even more stark, with the payroll survey showing 4.9 million more jobs added than the household survey.

"We're left with ambiguous results and we have to deal with that uncertainty around data," Powell said. "The overall picture is one of a strong and gradually cooling, gradually rebalancing labor market."

Economists tend to put more stock into the payroll survey, which polls 629,000 worksites, compared to the household survey, which polls just 60,000 households and can be "much noisier" with employment levels often swinging by 700,000 or more per month, according to Julia Pollak, chief economist at ZipRecruiter.

Immigration's impact

Rapid changes in the economy, particularly among traditionally difficult-to-quantify populations, can significantly impact estimates within the household survey, said Luke Pardue, policy director at the Aspen Economic Strategy Group. The ongoing rise in immigration over the past year has likely been a major driver in the differences between the two surveys.

"In general, we should not rely too much on the household survey to measure the level of employment, which it is not designed to do," Pardue said in an interview. "The reason we are seeing this divergence is instructive into how we should think about the state of the economy."

For example, the payroll survey shows a three-month average of 249,000 jobs added per month, but that growth could have a different meaning if it has been driven by faster-than-expected population growth caused by a jump in immigration, Pardue said.

"In that case, such numbers are around the pace needed to keep the job market steady, rather than a sign of a hot labor market," Pardue said.

When taken with supplemental data that economists rely on — including the unemployment rate, which has climbed to 4% in May from from 3.5% in July 2023 — the pace of job growth in the payroll survey may not be as strong as widely believed, Pardue said.

"The job market right now is likely not as rosy as the payroll numbers would suggest at face value, but the picture is also not as grim as the employment numbers from the household survey portray," Pardue said. "Focusing on the data each survey is designed to capture while incorporating up-to-date estimates of population growth [shows] a job market that is steady, but certainly not accelerating."

A clearer view

Other government jobs data also shows a labor market cooling faster than the substantial rise in employment the payroll survey has been showing.

Data in a quarterly census of employment and wages, released June 5, showed that job growth may have been substantially lower in 2023 than reported by the payroll survey.

The bureau's latest job openings and labor turnover survey, also known as JOLTS, showed a slowdown in hiring this year with about 5.6 million hires in both March and April, compared to nearly 6 million in those months a year ago.

In addition, less than a net 15% of small businesses in May said they had plans to create new jobs over the next three months, down from the peak of 32% in April 2021, according to the latest survey from the National Federation of Independent Business.

Net job gains have averaged about 250,000 per month since August 2022, but the labor market has slowed and labor competition has increased, Pollak of ZipRecruiter said. Businesses are hiring less as higher interest rates have hindered access to affordable credit and disincentivized risk, while workers are staying in place more.

"While job openings are still 15% higher than before the pandemic, ZipRecruiter's count of unique online job postings is all the way back to its pre-pandemic level," Pollak said in an interview. "The number of clicks per posting and applications per posting are slightly higher in most industries, signaling more intense job seeker competition for jobs, and less intense employer competition for candidates."